'Pure play' coal just doesn't cut it for UniSuper

The retirement fund just doesn't have any pure play coal investments because its investment processes say they're not a good long-term bet for 400,000 academics and researchers who rely on its prudent stewardship of their nest eggs.

"The outworking of that process says that we have very little coal exposure and very little pure play coal, and it's all passive," says Talieh Williams, manager of governance and sustainable investment for the $67 billion UniSuper fund.

Ms Williams won't comment on whether Yancoal approached UniSuper or what reception the fund gave them, but she says the virtual absence of pure play coal from UniSuper's portfolio is a direct result of the fund's investment processes.

"It's not been a conscious decision but more an outworking of our investment processes," she told The Australian Financial Review.

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'All passive'

"We have a strong quality approach to our investment processes and we assess a whole range of factors. The outworking of that process says that we have very little coal exposure and very little pure play coal, and it's all passive."

Any exposure is almost incidental. UniSuper is an active fund manager but it maintains small holdings in index funds for liquidity purposes and it is through these index holdings that its only pure play coal exposures arise. On the other hand it holds BHP Billiton and Rio Tinto, diversified miners that have reduced their coal exposures.

QSuper does include pure play coal companies in its portfolio because it seeks maximum diversification by investing across the S&P/ASX 200 index even as it strives to encourage companies to improve their governance of climate related risks and reduce their emissions. "We are very comfortable with that position. We don't see them as mutually exclusive," a spokeswoman said.

The University of South Australia in Adelaide, South Australia. UniSuper, the $67 billion retirement fund for 400,000 university and research agency academics, has no direct investments in pure play coal companies. Dirk Rueter / Alamy Stock Photo

A spokesperson for HESTA, the $44 billion health sector fund and Climate Action 100+ member, said it doesn't own shares in Yancoal and its "thermal coal restriction" precludes participation in capital raisings to materially expand thermal coal capacity.

High bar

Increasingly, this means stress-testing portfolios and business strategies against the Paris climate agreement commitment to reduce carbon emissions by enough to limit global temperature increases to well below 2 degrees, and the global Task Force on Climate-related Disclosures guidelines which require risk assessments of all plausible climate scenarios.

This is too high a bar to clear for pure or majority coal companies like Yancoal, Whitehaven and New Hope Group, whose strategies are all based around increasing thermal and steel coal sales to Asia, which is still building coal plants alongside accelerating expansion of wind and solar energy.

Bluescope Steel is one of 13 Australian companies being urged to take action to reduce their carbon emissions by Climate Action 100+ investors. Adam McLean AMZ

UniSuper's engagement with domestic companies on climate issues predates its membership of Climate Action 100+ by many years. Ms Williams said joining the group "re-emphasises that active engagement" – particularly with companies that have heavy carbon exposures.

The fund will continue to engage directly with carbon-intensive companies as well as through Climate Action 100+. The Australian funds in the group will appoint a lead investor to each of the 13 ASX-listed companies picked for their carbon exposures, who will then arrange meetings to discuss their concerns.

"We are not anti-fossil fuel but we do make very, very considered investment decisions, and as part of that assessment we do do ESG [environmental, social, governance] and risk assessment," Ms Williams said.